TMI Blog1995 (8) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gains of Rs. 48,700 was not assessable under section 54 in the hands of the assessee even though the assessee resided for a period of seven months in the property which was the subject-matter of capital gains tax ? " In the accounting period relating to the assessment year 1982-83, the assessee occupied a house constructed for the purposes of her residence in April, 1981, but she sold the same on November 3, 1981. The cost of construction was Rs. 2,01,300 and the consideration for which the house was sold was Rs. 2,50,000. Thus, there was a net capital gain of Rs. 48,700. In her return, the assessee claimed exemption under section 54 of the Income-tax Act, 1961 (for short, " the Act "). The Income-tax Officer upheld the claim but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under section 54 and that the view taken by the Tribunal is not sustainable in view of the judgment of the Madras High Court in M. Viswanathan v. CIT [1979] 117 ITR 244 which is being consistently followed by that court. The answer to the question referred to above depends upon the true interpretation of section 54 of the Act. Section 54 of the Act was inserted in the Income-tax Act by the Finance Act, 1978, with effect from April 1, 1974, and it remained in the statute book till it was amended by the Finance Act, 1982, with effect from April 1, 1983. As the question relates to the assessment year 1982-83, we shall refer to the unamended provision as it stood in the relevant assessment year, in so far as it is relevant for our purpose, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iately preceding the date on which the transfer took place ; 4. The property should have been used mainly for the purpose of residence ; 5. (a) The assessee has purchased a house property within a period of one year before or after the date of transfer ; or (b) constructed a house for the purpose of his own residence within a period of two years after the date of the transfer. It is only if the aforementioned requirements are satisfied that the capital gain has to be dealt with as provided under section 54 of the Act, viz., if the capital gain is greater than the value of the house property purchased or constructed, the difference between the amount of capital gain and the cost of new asset shall have to be, charged under section 45 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d " in the later part of that clause. There is no doubt that the words grammatically indicate a continuous state of affairs in the past. But that does not mean that continuity should commence at the point when " two years preceding the date of transfer " commences and should end with the " date of transfer ". Will the absence of the assessee during the period of holidays from the house destroy the continuity ? Or will his non-occupation of the property due to absence from station for reasons of service or otherwise have the effect of breaking the continuity ? We think not. In our view those words are used to indicate continuous residence, not necessarily for two years, in contradistinction to mere casual stay or occasional stay for a short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a continuity which extended up to the termination date which is clearly stated as the date of transfer. For the reasons, we have already indicated above, with great respect, we are unable to accept the interpretation placed by the Division Bench of the Madras High Court. The view in Viswanathan's case [1979] 117 ITR 244 by the Madras High Court, was followed by that court in CIT v. Mala [1982] 135 ITR 302 (Mad) and CIT v. K. N. Srinivasan [1987] 163 ITR 320 (Mad). Section 54 of the Act came up for consideration before a learned single judge of the Delhi High Court in S. Harnam Singh Suri v. CBDT [1984] 145 ITR 159. There the question was raised by the assessee in a writ petition and not by way of reference under section 256 of the Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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